The state normally borrows via short-term notes in autumn to tide it over until tax revenue arrives later in the fiscal year. But Lockyer can’t borrow money until a budget deal is in place.

In September 2009 the state issued $8.8 billion in notes. The series that matured in May 2010 paid investors an annualized yield of 1.25%; the series that matured in June paid 1.50%. Interest on the state's notes is exempt from federal and California income taxes.

It isn’t yet clear what rate the state might have to pay this year, but even a 1% tax-free yield would be far above what most short-term securities pay.

The average annualized yield on tax-free money market mutual funds is a mere 0.04%, according to iMoneyNet Inc. Six-month bank certificates of deposit pay an average of 0.51%, according to Informa Research Services Inc. Bank interest is fully taxable.

The state’s notes were enormously popular with individual investors in last year’s sale. The catch: You have to go through a brokerage to buy them. The minimum investment in the past has been $5,000.